2026 tax year
Staffing or recruiting agency owner taxes and deductions
A staffing agency deducts wages for people who never set foot in its own office. You are the employer of record, so payroll tax, unemployment insurance and workers' compensation sit on your return. And workers' compensation is rated on what the placed worker does, not on what you do, so placing roofers costs many times what placing bookkeepers does.
Placement fees are income when earned, and a guarantee period that forces a refund creates a deduction in the year you repay rather than a correction to the original year. Applicant tracking software, job board spend and background checks are ordinary deductible costs. And unlike most professional service firms, a staffing business that sources and refers candidates is not treated as consulting. So the 20% business profit deduction survives at incomes where a consultancy would lose it. Sell advice and counsel rather than placements and that changes.
The rest of the staffing or recruiting agency owner deduction list
Ordinary and necessary business expenses, deductible in full in the year you pay them, provided they are genuinely for the business:
- Staff wages
- Your share of payroll taxes
- Workers’ compensation insurance
- Liability insurance
- Recruitment costs
- Applicant tracking software
- Marketing
- Background check fees
- Professional fees
Worth knowing
You are the employer of record for people who work somewhere else entirely, which puts payroll, unemployment and workers' compensation on your return rather than the client's.
That is what is specific to this trade. The larger deductions are the universal ones, see the full checklist.
What each deduction is worth to you
On $100,000 of profit with no state income tax, $1,000 deducted saves $305, 30.5%, because it comes off self-employment tax and income tax together:
| Net profit | Saved per $1,000 deducted | Effective |
|---|---|---|
| $40,000 | $231 | 23.1% |
| $100,000 | $305 | 30.5% |
| $200,000 | $297 | 29.7% |
The last row is worth less than the one above it, and that is not a mistake: past the Social Security wage base the self-employment part of the saving drops from 15.3% to 2.9%, and the higher income-tax bracket does not quite make up the difference. A deduction is worth most in the middle.
Add a state income tax and every row rises. The 1099 calculator applies that layer.
Where this comes from
The rules on this page that are specific rather than general are cited below. Follow a link to read the provision itself rather than taking our word for it:
- A staffing firm that sources and refers candidates is not in the field of consultingReg. 1.199A-5(b)(3) Example 9medium confidence
Related
- Full deductions checklist
- Every profession
- 1099 taxes by state
- Quarterly payments
- Is an S-corp worth it?
- Local income tax
General information about how these deductions work, not tax advice. Whether a particular expense is deductible for you depends on facts this page does not have, check with a tax professional before claiming anything listed here.